Abstract
Following the financial and debt crises in the euro area and the delays in formulating a cohesive policy response, banks faced serious problems with the increase in non-performing loans (NPLs) being the most threatening. Economic policy uncertainty (EPU) has often been blamed for initiating and propagating NPLs. In this study, we attempt to estimate empirically if EPU has a significant effect on NPLs and if this effect can be restrained by another legacy of the crisis, namely bank concentration. By employing a panel dataset of 507 banks from four major euro area countries (France, Germany, Italy and Spain) during the period 2005–2017, we find that EPU has a positive impact on NPLs but this impact is significantly moderated by higher bank concentration.
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